Tag Archives: Dave Cheatham

When web-based shopping gained popularity over the last two decades, spearheaded by the likes of Amazon and major retailers’ internet storefronts, the imminent demise of brick-and-mortar establishments seemed likely. War was declared between bricks and clicks.

The win-lose conversations are fading into the background as researchers suggest a more symbiotic relationship between the two.

Stores such as Birchbox, Warby Parker and Bonobos are retailers that began as e-commerce only and are moving into physical storefronts. Amazon.com, which reportedly controls about half of online-only sales in the U.S. (and 5 percent of U.S. retail sales), has also announced plans to open a physical storefront in New York City.

“Several national directors of real estate have indicated that zip code specific sales suffer when a proximate brick-and-mortar store is closed,” says Joel Moyes, principal of Kinetic Companies and Arizona and New Mexico state director for the International Council of Shopping Centers (ICSC).

No one denies the retail sector, plagued by high vacancy due to abandoned big box spaces waiting for alternative uses or to be broken down into smaller storefronts, is one of the hardest hit by the economic downturn. Moreover, it is having to evolve with a changing base of consumers.

Despite the pressures of technology, not that much has really changed at the core of retail’s purpose, says Dave Cheatham, president of Velocity Retail Group, LLC.

“Retail is about getting product to a customer,” he says. “Whether the customer comes into the store and looks at the product but then purchases it over the internet or whether the customer shops online and then goes into the store to purchase is irrelevant. The bottom line is that the retailer is still selling their product.”

According to IDC Retail Insights, omni-channel customers shop three times more frequently and spend 3.5 times as much as single-channel shoppers. A survey of 100 senior executives at leading retailers as reported by the Retail Industry Outlook Report compiled by KPMG LLP reported the biggest revenue driver in the next one to three years is customer retention.

Omni-channeling is paving the way for this. One example, Cheatham points out, is a store’s ability to search inventory at all surrounding stores to find and ensure delivery of the product carried by the company but not at the store within 24 to 48 hours.

Dave Cheatham

“This newer offering is better for the customer, who now gets the product they wanted, and the retailer does not lose a sale,” he says. “Additionally, it helps the retailer utilize their inventory more efficiently by pushing product to the customer, rather than sitting in a back room.”

This kind of technology, employed by heavy hitters such as Wal-Mart and Target, do require significant technological upgrades. More than half of the senior executives surveyed said investing in technological updates, which include company website, brick-and-mortar stores and social media, then mobile, in that order, were a high priority. However, about that same number of executives cited cost as a hindrance in technological upgrades.

According to a January 2014 report by Business Insider, the number of smartphone users using mobile coupons was estimated to reach 47.1M last year — this equates to about 41 percent of department store customers. Mobile payments are a focus of about 40 percent of the KPMG surveyed retail executives.

“Retail is constantly evolving,” says Cheatham. “From the size of the prototypical store for each retailer, to their product mix, changes occur continually. More importantly, how a retailer reaches their customer has also changed. Omni-channel retailing is nothing more than a continuation of this evolution.”

Many luxury name brands are continuing to expand worldwide, including H&M, which is adding 375 stories, including one that will land at Tempe Marketplace this fall. RBC Capital Markets reported 40,000 U.S. retail store openings planned between November 2014 and 2015. Overseas, Dubai is building the world’s largest mall (8MSF) this year, reports Colliers International in its Global Retail Highlights for the second half of 2014.

Right-sizing is still very much a thing, while retailers feeling the crush of online shopping are becoming more creative with the brick-and-mortar space they do have.

National vacancy for retail is 6.3 percent as of 2Q 2014, according to Colliers International. Phoenix saw an increase in rent per square foot rise to $22, a 26 percent year-over-year rent increase.

In June 2014, UPS published “UPS Pulse of the Online Shopper,” a white paper featuring research by comScore, Inc. It found “long-term infrastructure investment will be required to support growing customer demand.”

This begins with distribution centers, which allows orders to be fulfilled and increase transparency across retail channels, the paper continues. According to 2014 Forrester research, more than half of U.S. retail sales will be influenced by online store visits. This includes shipping items to a store for pickup, which has a 40 percent chance of leading to more on-site purchases.

UPS reports that two-thirds of smartphone owners use their phones in-store for shopping to compare prices (36%), read reviews (27%), text friends about the product (25%). That same percentage of people, according to A.T. Kearney’s Omni-channel Shopping Preferences study, visit a physical store before or after making an online purchase.

Obviously, with e-commerce and distribution centers, retailers are thinking about delivery times, which can influence retention of a customer — 50 percent of shoppers have abandoned an online shopping cart due to long delivery estimates or a lack of an estimate, according to UPS. However, about 83 percent of customers are willing to wait an additional two days for delivery in exchange for free shipping, this is particularly true for people who are ordering items that are not available at local retailers.

“Shopping is one of America’s favorite entertainment venues, and that is not likely to change. A case in point is that the Mall of America has more visitors than Disney World in a given year,” says Cheatham. “It’s not about bricks or clicks. It’s about bricks, clicks and happy customers.”

Equipped with a high-tech camera that takes photos and shoots aerial footage, Unmanned Aerial Vehicles(UAV) might seem appealing to local real estate companies, but the legality of their use remains up in the air when it comes to commercial realty.

Motorized aircrafts are traditionally used for leisure activities, but UAVs are increasingly taking flight to accelerated heights. Based on Federal Aviation Administration (FAA) regulations, there are many variables to be taken into consideration when using drones for anything other than private purposes.

“The cons are pretty substantial,” says Elisabeth Martini, associate attorney at Resnick and Louis Attorneys at Law. “The biggest one being the concerns for privacy and second, the concerns about safety. Because there is a wide range of the types of drones, the safety mechanisms in them range drastically.”

The privacy of residents in close-knit neighborhoods has become a concern with the UAVs crossing property lines into another backyard. Trespassing, nuisance and spying are all examples of invasion of privacy that leave many residents concerned.

“Compared with the general public, I think the concern with drone use is more along the lines of privacy, rather than safety,” Martini says. “Generally, we’re not really worried that something is going to fall from the sky onto our property and damage it. We are thinking, ‘I don’t want somebody to be able to fly a drone over my property and see into my house.’”

Public entities, such as the government, municipalities, towns and police, can obtain a waiver from the FAA and operate UAVs for approved purposes.

“They can do border patrol sweeps, search over people’s properties for drugs or take a type of census,” says Martini. “Mainly for research, not for prosecution purposes. It is carved out for public entities rather than commercial entities.”

In 2007, the FAA reserved the right to fine, send out warning letters, issue a cease and desist order and verbally warn someone who is using a drone. Martini expresses her concerns on whether the FAA actually has the ability to fine someone for using a drone pertaining to commercial purposes.

Entering a buyer’s market, real estate has been booming, and the use of drones are a catalyst to market property at all angles. From an aerial view, buyers can get a perspective of a building’s surroundings and structure.

“It’s a great marketing tool,” says Court Rich, Senior Partner at Rose Law Group. “Showing different views of the home, land and the context of where it is. You have the opportunity of taking flattering photos or to show context, that Google Earth or walking around the house won’t get you.”

Dave Cheatham, president of Velocity Retail Group and a commercial real estate broker, incorporates the use of drones into his practice by having two drone pilots maneuver the UAVs over commercial properties. Videographers turn the aerial footage into useable marketing for the properties.

“[A drone] gives you context you cannot get from being on the ground,” he says. “You can use photography to get an oblique, angled view, to understand things such as, ingress and egress. You can see access to roads, freeways, and where the residential is. That is a real advantage. The video portion of it, gives you a virtual tour from the air.”

The cutting-edge technology has evolved at a rapid pace that the FAA is striving to develop standards and regulations for quickly. Real estate is booming and so is the use of the advanced UAVs. The National Association of Realtors has advised drones to not be used because the law is in flux, according to Martini.

Recently, Congress instructed the FAA in The Modernization of Reform Act 2012, which exempts model aircrafts, to develop a safety plan and standards in accordance with the national airspace system, according to Martini.

“The FAA has a lot of work to do in the coming months to make sure they are ready to issue these deregulations by the end of the year. There will probably be some growing pains once those come out and people try to figure out what it means to them and how to safely operate the drones for commercial purposes,” Martini said.

Following is a summary of recent retail transactions completed by Velocity Retail Group, LLC:

Popeye’s Louisiana Kitchen was represented by Darren Pitts, Michael Clark, Nick Ault, and Dave Cheatham of Velocity Retail in the acquisition of 2,565 SF at the southwest corner of Central and Dunlap in Phoenix, AZ. The former KFC building was represented by Jason Fessinger of Strategic Retail Group, the Landlord was an entity controlled by Lawrence Geyser & Associates. The site will be repurposed for the new Popeye’s location, set to next this year.

Judi Butterworth and Nick Ault of Velocity Retail represented the landlord at Peoria Sunnyside Plaza, located at the northwest corner of Olive Avenue and 51st Avenue in Glendale, AZ, in leasing 1,500 SF to Cox Communications. The tenant was represented by Regan Amato of Phoenix Commercial Advisors. The new location will open the first quarter of 2015.

Michael Clark and John Jackson of Velocity Retail Group leased 2,765 SF at the northeast corner of Tangerine Road and Dove Mountain Boulevard in Marana, AZ. The tenant, Sunset Interiors was represented by Richard Speiser of KW Commercial, Southern Arizona.

Velocity Retail Group’s Andy Kroot represented tenant Krispy Kreme Doughnuts in the lease of 2,741 SF at the SEC of I-10 and Dysart Road in Avondale, AZ. The new location is just one of many Krispy Kreme plans to open as they expand throughout the Valley. The landlord was represented by Jennifer Eggert of Zell Commercial RE Services.

Michael Clark and John Jackson represented the landlord of Park West at the NWC of Northern and Loop 101 in Peoria, AZ in a 6,500 square foot lease to The Cabin Modern Whiskey Bar. The new restaurant is owned by Chris Tsailakis of My Big Fat Greek Restaurant, Whiskey Row Saloon, Caio 89, and several other popular Arizona restaurants. Tsailakis was represented by Chip Diamond of Diamond Properties in the transaction. The Cabin Modern Whiskey Bar is slated for opening in the first quarter of 2015.

Darren Pitts and Michael Clark of Velocity Retail Group represented Mattress Firm in the lease of 4,000 SF at Deer Valley Towne Center, located at the SWC of I-17 and Loop 101 in Phoenix, AZ. The new location will open in the first quarter of 2015. The landlord was represented by Kalen Rickard of Strategic Retail Group.

Velocity Retail’s Larry Miller, John Jackson, and Michael Clark represented Bethany Towne Center at the NEC of Bethany Home and 35th Avenue in Glendale, AZ, in the lease of 1,300 SF to Kelly D Nails and Spa. The salon joins a great tenant line-up at the shopping center, which includes a Walmart, YouFit Gym, and Harbor Freight Tools.

Ahwatukee will soon have a new 22,565 square foot store for Goodwill Industries of Central Arizona. The retailerwill be opening in the Foothills Shopping Center at the northeast corner of Ray Road and 48th Street in Phoenix. Formerly a Michael’s, the tenant was represented by Velocity Retail Group’s Andy Kroot.

Darren Pitts of Velocity Retail Group, and Chris Peters of Capital Pacific in San Francisco represented the seller, J & M Management, LLC in the sale of 10011 Metro Parkway East in Phoenix. The buyer, Tombstone Tactical was represented by Larry Miller of Velocity Retail in the purchase of the 5,425 square foot former Verizon store. Tombstone Tactical has a location in Chino Valley and is growing their business by opening this second store.

Judi Butterworth of Velocity Retail represented the seller, Sooner Frye Price, LLC in the $1.5 million sale of 2.4 acres at the southeast corner of Frye Road and the Loop 101 Freeway in Chandler, AZ. The buyer will open a Chuck E. Cheese restaurant on the parcel. The buyer, Melvin Property #3260 LLC currently has 14 restaurants in multiple states. He was represented by Western Retail Advisors. The property is adjacent to the Hilton hotel.

Moon Valley Towne Center at the southeast corner of Bell Road and 7th Street will soon have two new tenants. Orange Theory Fitness will be opening a 3,090 square foot location adjacent to Hobby Lobby in October of 2014. Additionally, Cartridge World will be opening a 1,260 square foot store. This is a relocation from an existing location. The Landlord, NorthStar Realty Finance Corp. is represented by John Jackson, Larry Miller and Michael Clark of Velocity Retail Group.

Brian Gast of Velocity Retail Group represented the landlord of Scottsdale Fiesta shopping center at the southeast corner of Shea Boulevard and the Loop 101 Freeway in a 3,749 square foot lease to Watercolors High Fashion. The new store recently opened for business. Danielle Davis of LevRose Real Estate represented the tenant in the transaction.

Dave Cheatham of Velocity Retail Group represented Mega Furniture in three separate transactions in San Antonio and Austin, Texas. Working with Nick Altomare of The Retail Connection in San Antonio, the team leased a 29,487 square foot location at 125 NW Loop 410 in the La Plaza Del Norte shopping Center. RPAI was the landlord for this 10-year deal. In a second transaction, Mega Furniture purchased a former K-Mart building located at 3150 Pat Booker Road in San Antonio. The 72,454 square foot building is located on 11.15 acres. These stores are expected to open in the next quarter. In the third transaction in Austin, Texas, Mega Furniture leased a 31,736 square foot building at 3815 Dry Creek Drive in Austin, Texas. The landlord is Sandalwood Management in this 10-year lease. Todd Wallace of Jones Lang LaSalle worked with Velocity Retail group on this transaction. Look for more locations to be announced in the coming months as Mega Furniture expands its Arizona footprint in Texas.

Velocity Retail’s Darren Pitts and Chad Moore of Mountain West Retail represented Mattress Firm in a new 4,084 square foot location at 598 W. Main Street in American Fork, Utah. The site was a former Rubio’s.

Goodwill Industries of Central Arizona, Inc. was represented by Velocity’s Andy Kroot in a new 25,000 square foot location at the northeast corner of Ellsworth Road and Heritage Square in Queen Creek, AZ. The Landlord is E.R. 15, LLC.

Popeye’s Louisiana Kitchen was represented by Dave Cheatham, Darren Pitts, Michael Clark, and Nick Ault of Velocity Retail Group in the 15-year lease of a parcel that will accommodate a 2,695 square foot freestanding building at The Pavilions at Talking Stick at Indian Bend Road and Loop 101 in Scottsdale, AZ. The Landlord is De Rito Pavilions 140, LLC.

Ashley Furniture Stores will open a 15,505 square foot location in the Cascade Village Shopping Center in Bend, Oregon. The tenant was represented by Darren Pitts of Velocity Retail Group and Mark New of New & Neville from Portland, Oregon in the 10-year lease transaction. The store is expected to open this fall.

Larry Miller and John Jackson of Velocity Retail Group represented Edward Jones Investments in two separate transactions. First in a 1,436 square foot lease at Bell Plaza North shopping center located north of the northwest corner of Bell Road and Boswell Road in Sun City, AZ. This location is expected to open by January 2015. The second transaction is a 915 square foot location at the southeast corner of Baseline Road and Hawes in Mesa, AZ. The store is expected to open in October of this year. Edward Jones continues to reposition their stores into more prominent locations including office buildings. Look for more transactions in the near future.

Andy Kroot of Velocity Retail Group represented Goodwill Industries of Central Arizona in a 25,000 square foot transaction at the southeast corner of 99th Avenue and Lower Buckeye Road in Phoenix, AZ. The Mack Southwest Corporation is the landlord for this build-to-suit location.

Total Sports Therapy leased 3,238 square feet in Lone Mountain Landing at Cave Creek Road and Lone Mountain Road in Cave Creek, AZ. The Landlord, NorthStar Realty Finance Corp. is represented by John Jackson, Larry Miller and Michael Clark of Velocity Retail Group. The tenant is expected to open in October of this year.

Goodwill Industries of Central Arizona, Inc. is opening a 25,000 square foot location north of the northeast corner of RH Johnson Blvd., and Camino Del Sol in Sun City West, AZ. Brown Grace 6 Investments, LLC is the landlord for this build-to-suit location.

Goodwill Industries will be opening a new retail store at the southwest corner of Arizona Avenue and Riggs Road in Candler, Ariz. Andy Kroot of Velocity Retail Group negotiated the ten-year lease of 27,600 SF on behalf of the tenant. The landlord, Greenway 32, LLC, was represented by Bob Rusing of Arizona Partners Retail.

Velocity Retail Group represented Tokyo Joe’s in a ten-year lease of 2,500 SFnorth of the northeast corner of Baseline Road and Val Vista Drive in Gilbert, Ariz. The landlord was represented by Trent Rustan of Commercial Properties. A second Tokyo Joe’s was also signed at Chandler Pavilions at the southeast corner of Ray Road and Interstate 10 in Chandler. The 2500 SF store will be opening in the former Barbeques Galore space during the 3rd quarter. The landlord was represented by Cliff Johnston of Cassidy Turley BRE.

Integrity Staffing leased a 6,005 SF free-standing building at the Agua Fria Towne Center, located at the northeast corner of Camelback Road and Loop 101 in Glendale, AZ. Velocity Retail Group’s Judi Butterworth, Nick Ault, and Michael Clark represented the landlord. The tenant was represented by Michael Prochelo of Financial Management Group.

Nick Ault of Velocity Retail Group represented Yummi Sushi in a three-year lease of 3,797 SF at the northeast corner of Thunderbird Road and 32nd Street in Phoenix. The landlord was represented by Reuel Couch of The Restaurant Brokers.

Representing the landlord at the Sun Village Fair Shopping Center at the NEC of Warner Road and Alma School Road in Chandler, Ariz., Michael Clark, John Jackson, and Larry Miller of Velocity Retail Group leased a 1,507 SF space to Third Party MVS Services on a five year lease. Sun Village Fair is one of eleven valley centers that Velocity Retail Group represents for owner NorthStar Realty Finance Corp.

Denny’s Restaurants was represented by Andy Kroot of Velocity Retail in the 10-year least of 5,695 SF at the NWC of I-17 and Dunlap Avenue, in Phoenix. The Winco/Conn’s Shopping Center was represented by Gordon Keig of Kornwasser Properties.

Larry Miller and John Jackson of Velocity Retail represented Edward Jones Investments in the five year lease of 1,100 SF at Lindsay Groves on the SWC of Lindsay Road and Germann Road in Gilbert, Ariz. The landlord was represented by Matt Zaccardi of CPI. Edward Jones Investments plans to relocate their Gilbert office to the new location in October of this year.

Miller and Jackson also represented The Sherwin Williams Company in the ten year lease of 4,000 square feet West of the Southwest corner of Happy Valley Road and 19th Avenue in Phoenix, AZ. The landlord, Happy Valley Towne Court, was represented by Jerry Roberts of NNN Amercia. The lease represents the first of several stores Sherwin Williams plans to open in 2015, as they expand their North Phoenix footprint.

Westfest LLC, owners of Desert Sky Festival located at the southeast corner of Thomas Road and 75th Avenue recently completed a 3-year lease with CFC financial for a 1200 square foot space. Judi Butterworth from Velocity Retail, and Paul Serafin of De Rito Partners co-listed the project and negotiated on behalf of the Landlord.

Darren Pitts of Velocity represented Uptown Cheapskate in a five-year lease of 4056 square feet at Chandler Gateway shopping center located at the northeast corner of Chandler Boulevard and Chandler Village Parkway. The landlord is Chandler Gateway SPE, LLC. The retailer is a sister company of Kid to Kid, and will focus on teen and tween resale and new clothing and accessories. The store is planning to open by 3rd quarter of this year.

The Phoenix commercial retail market continues to improve in vacancy and increased leasing activity. Vacancy rates, once hovering near 14% have now dropped to 10.6% through the 2nd quarter of 2014. Leasing activity of 2.6 million square feet in 2013 was the strongest recorded since before the Great Recession six years ago. Additionally, in the first two quarters of 2014 the market has recorded absorption of 750,000 square feet. These three factors combined position the market to continue to improve through the balance of 2014.

Of the six regional areas, all but two are in single-digit vacancy as of the 2nd quarter. The Central and Southeast regions continue to be hit with higher big box vacancies that drive the vacancy higher in these regions. Overall in Phoenix big boxes total 38% of our total vacant space. However, in the Central region big boxes account for 46% of the vacancy, and in the Southeast region it is 42%. With 261 vacant big boxes in Phoenix, this component of the retail market continues to be a cause for concern.

A bright spot on the horizon is that retailers and restaurants are active with national and regional concepts announcing their arrival in the market. Activity for shop space is increasing and rental rates for premium buildings are holding strong. Retailers who have remained relatively dormant during the last five or six years are cautiously starting up their expansion plans once more.

With little to no new construction on the horizon we are accelerating the rate that vacancy declines, and even with continued steady absorption, we are projecting that the entire market will be in single-digit vacancy with every regional area recovering to near pre-recession vacancy levels. Phoenix is poised for continued progress in 2014.

The 2014 ICSC event in Las Vegas has successfully wrapped up, and initial reports are that the retail industry is poised for continued expansion. The attendance was up from last year with the attendee count reaching close to 40,000. Having experienced the last 5 years of our annual convention during the economic downturn, this year was a welcome change. It was encouraging to see people spending their time talking about what is going on for the future and reviewing new sites. Discussing business. Not the past.

The ominous cloud that has darkened many markets for the past five years has appeared to have lifted. Looking around the convention hall there were site plans on every table, conversations were about new deals as retailers and developers are preparing for a measured expansion in the coming years.

Velocity Retail Group a member of X Team International, a network of experienced retail partners throughout North America. With over 35 offices and 400 professionals we are able to understand the market from a global perspective. Some states such as Texas, California and Florida have strong growth and are back to their pre-recession activity level. This is contrasted by a few other markets that are still feeling the economic effects of recent years.

In the Phoenix market we still have a ways to go, but we are finally rebounding with several economic indicators pointing toward positive growth. Forbes magazine projected Arizona to have the fastest job growth at 3% annually over the next five years, and Moody’s Analytics forecasted Arizona to expand to a U.S. best of 4.6% annual economic growth. A myriad of retailers and restaurants are opening their first stores in the Phoenix area with several more exploring future expansion plans.
The retail market is frozen no more. Phoenix vacancy rates continue to improve, and should finally break back into the single-digits by the beginning of 2015. In fact at that time, most of the retail submarkets in Phoenix except for the Central and Southeast Valley will be considered to be in a healthy position. The big-box sector, with 265 vacant big boxes will continue to be a source of concern. Our company has invested in new technologies, resources, and personnel. We are prepared for the next wave, and are expecting a big one.

Over the past two years, the Phoenix retail real estate market continues to improve with lowered

vacancy rates and strong absorption. The one area that persists as a cause for concern is the number of vacant big boxes in the market. With the recent announcement of the impending sale of Safeway to one or more of their competitors, this is news that could create further hardship in the Arizona shopping center industry; here is why.

Overall Phoenix retail market 4Q 2013.

Currently, there are 308 vacant big boxes in the Phoenix metropolitan area. Over 56% of these boxes are in neighborhood shopping centers.

This amounts to a total of 175 vacant boxes in neighborhood centers. Never before in the history of the Phoenix area have we ever come close to having this amount of vacancies in our neighborhood shopping centers.

When a grocery store becomes vacant in a neighborhood center this obviously creates a harmful effect on the small shop tenants in the shopping center who depend on the traffic driven by the grocery store. A grocery anchored center does not have the same pulling power to draw customers that a power center or regional mall does. Neighborhood centers typically only reach shoppers in a one to three mile radius. These smaller trade areas are the hardest to replace from a re-tenanting perspective if there is not another grocery store that can fill the void.

Vacant big boxes by type of center.

With the continued transformation of the grocery industry shifting to regional trade areas and to larger and larger formats often over 100,000 square feet, retailers such as WinCo, Super Wal-Mart and Fry’s Marketplace are not viable candidates for these neighborhood centers. Additionally, many times a grocery store has a restriction against another grocery store going into the same space, limiting the already small pool of potential replacement tenants even further. These types of vacancies also have a very negative effect on the value of this type of shopping center. Many of them have lost 70% to 80% of their value because of a vacant anchor.

When Basha’s filed for bankruptcy in 2009 they left 25 vacant grocery stores in their wake. Today, five years later 13 stores — over half —are still vacant. If Safeway is sold to someone who is currently in our grocery market, I fear that there will be a rash of store closings which will further exacerbate our big box problem – just as we are starting to gain some ground.

Neighborhood shopping centers have been a mainstay for investors as power centers have lost some of their appeal in recent years. Neighborhood centers were considered a safer investment as they had not been affected by the downsizing and consolidations among the power center users (electronic stores and office supply, are examples). Many REITs are looking for a safer product type for their investors and neighborhood centers fit their criteria nicely. A merger of this type will cause the investors to step back and evaluate their options even further.

In the event of a Safeway-Albertson’s merger this could be one of the better outcomes for Arizona, as Albertson’s would have an opportunity to increase their footprint and market share in Phoenix. In this event, don’t be surprised if there is a large block of stores that hit the marketplace, which will impact our improving yet still fragile retail market.

The grocery business in Arizona is very diverse and like all retail, will continue to evolve. There is no doubt that we will have some interesting times on the horizon. Let’s hope that this merger creates a cloud that has a silver lining, and that however this merger shakes out that the stores are able to continue to operate and not add to our big box surplus.

Velocity Retail Group, LLC announces that the first newly redesigned prototype for Popeye’s Louisiana Kitchen will be built at the southwest corner of Elliot Road and Priest Drive in Tempe, Ariz. President Dave Cheatham, Vice President Michael Clark and Associate Nick Ault of Velocity Retail Group represented Popeye’s in the transaction. The landlord TPP JV Maricopa, LLC an entity controlled by Trigate Capital was represented by Clift Johnston of Cassidy Turley BRE.

“The site is the first of many that this new Phoenix franchisee is planning for the Arizona market. While we have existing Popeye’s stores in our market, the Louisiana Kitchen concept it new to the chain and our market,” said Cheatham.

“Arizona is a key expansion market for our franchise company, by working with Velocity Retail we are able to maximize their experience and relationships in the market to execute our expansion plan,” said Amin Dhanini, President of HZ Props AZ, LLC the entity which will control the Arizona stores.

Popeye’s Louisiana Kitchen, Inc. is the world’s second-largest quick-service restaurant chicken concept with 2,225 stores as of the end of last year. Popeye’s distinguishes itself with a unique “New Orleans” style menu that features spicy chicken, chicken tenders, fried shrimp and other seafood, as well as jambalaya, red beans and rice and other regional items. Popeye’s is a highly differentiated brand with a passion for its Louisiana heritage and flavorful authentic food.

The new building will be 2,951 SF and be located on a 23KSF parcel fronting Elliot Road. It is expected to open by the 4Q of this year. “We are pleased to be able to represent Popeye’s as they roll-out this new concept to the Arizona market. Our goal is to strategically locate A+ sites and get their stores up and running as fast as possible,” said Clark.

From fresh paint to new market positions, shopping centers are pumping in deferred dollars to greet the returning retail dollars.

“When things stay the same, that’s scary,” says Stan Sanchez, president and partner of De Rito Partners, about the shift in the Arizona shopping center marketplace. “There’s no doubt that location, location, location is still most important for retail site selection. The difference is that the market for the location is shifting.”

Sanchez and his company recognized the shift in the markets surrounding properties they own and manage, and post-recession activity is freshening those properties.

“There’s two parts to all the activity going on,” says Dave Cheatham, president of Velocity Retail Group. “It’s not a wave of renovation; it’s a combination of catching up with deferred maintenance and updating properties for the market.”

Gordon Keig, senior vice president at Kornwasser Shopping Center Properties, LLC, agrees, but with a slightly different take.

“Building in a growth area ties up your money for as much as three years,” he says. “Finding a good value in an older property and turning it around is a lot more appealing because you are working with a current cash flow.”

Although the proverbial “location, location, location” is still good, the property’s market has changed. Demographics shifted in Arizona markets from the time many shopping centers were built. Throughout 2013, the media bemoaned the plight of aging shopping centers or predicted the scraping and redevelopment of obsolete retail corners.

“I don’t see that happening,” says Cheatham. “In the Phoenix and Tucson markets, we have challenges with empty big boxes, and those are being adapted to alternative uses. Shopping centers, even distressed centers, are changing to match the market.”

Kornwasser bought the Southgate Mall late in 2012 and has plans to tear down the main building in the 346,000 SF mall then rebuild it with smaller, contemporary outward-facing stores.

“There is shrinking demand for retail space,” he says. “Even with the reduced square footage, we’ll have a more functional, efficient and valuable property.”
At the other end of the spectrum are looks.

From De Rito’s platform, Sanchez is involved with upgrading its properties, overseeing enhancements of properties managed and in some cases, running the redevelopment efforts.

“It was more than lipstick for Pavilions (Loop 101, Indian Bend and Pima roads in Scottsdale),” he says. “It was a large-scale redevelopment of the property.”
Countering the downsizing trend, De Rito Partners took the center from 900,000 SF to 1.4 MSF.

“Redevelopment in this market requires innovation and creativity. We changed paving, landscaping and facades,” Sanchez lists the upgrades to the Valley’s original power center. “We’ve got a modern look and changed the property to fit the changing market.”

This may be the most important mantra for retail property owners for the second half of the decade: changing the property to fit the changing market. Keig, Sanchez and Cheatham all spoke of how the market has shifted in the past 10 years.

“We have an interesting situation in the market,” says Cheatham. Velocity is one of the largest retail brokerages in the state in terms of square footage represented. “We have more big box vacancies than anywhere else in the nation, and we’re the best place in the country for small-space leasing activity.”

Small store leasing is going to be very healthy in 2014, he says. Rental rates are still very competitive for lessees, but there are going to be fewer new retail spaces developing. Sanchez sees single-digit retail vacancy rates in 2014. For Keig, the investment is in already-developed neighborhoods.

“In-fill is finally beginning to happen,” he points out. “We’ve heard of it for years, but with financing challenges today, it’s easier to back a project where there is some existing cash flow from current tenants. The project moves faster.”

It’s not just the small shopping centers undergoing facelifts and cosmetic surgery. “We’re going to be re-shaping (Scottsdale Fashion Square)” reports Steve Helm, assistant vice present, property management for Macerich and manager of the 1.9 MSF tri-level Fashion Square. Once city approvals are locked down, Macerich plans construction of a nearly 100,000 SF addition that replaces the current, aging Harkins theaterplex on the lower level by raising a new 12-screen complex to the second level. About 50,000 SF of retail space will be opened up under the new theater.

“Redevelopment is exciting and rewarding,” concludes Keig. “It’s an opportunity to invest in neighborhoods, and the neighbors return the favor when you do it well.”

Phoenix Metropolitan retail recorded positive net absorption for the third straight quarter as recorded in statistics just released by Velocity Retail Group through June 30, 2012. This is the first positive absorption recorded since before the “Great Recession” in November of 2008. After 12 consecutive quarters of negative absorption, the last three quarters of positive absorption signal a healing that has begun and shows that we are well on our way to a solid recovery.

Dave Cheatham, managing principal of Velocity Retail Group commented on this positive trend, saying, “Since late 2011 we have been seeing an up-tick in retailer activity. National tenants are exploring their expansion opportunities, value oriented retailers have been taking advantage of the big box spaces that have been vacant, and local and regional tenants are opening new stores.

“Landlords are figuring out how to structure deals with quality tenants, and fill those empty spaces,” said Cheatham. “Whether it’s a combination of free rent, additional build-out monies, or favorable rent structures for the first few years, they’re getting it done.”

Michael Clark, vice president at Velocity, states, “There is over 1.2 million square feet of net absorption through the second quarter of 2012. The Phoenix retail market has not seen annual positive absorption since 2008. The overall vacancy rate for Metropolitan Phoenix has been showing consistent improvement in the past year with a recorded decline of over one percentage point in the past year. This is extremely good news.”

Velocity Retail reports second quarter of 2012 ended with a vacancy rate of 12.2%. Just one year ago, in the second quarter of 2011, the vacancy rate was 13.4% which is an improvement of 1.2% in this twelve month period.

Velocity Retail Group sees a favorable outlook for the Commercial Retail market for 2012. With improved tenant activity from national and local retailers, and some of the obsolete retail spaces being absorbed by non-retail uses (such as schools, medical facilities or call centers), the vacancy rate should continue improve and by mid-2013 be between 9.9% and 10.5%.